Weekly Recap: Oil Prices Stabilize as OPEC Eases Cuts
Global crude oil prices remained range-bound this week as the Organization of Petroleum Exporting Countries (OPEC) agreed to ease production cuts. Prices were further supported by data from the U.S. Energy Information Administration (EIA) that showed a higher than expected oil inventory draw.
The Brent crude contract for September delivery declined 0.23% during the week to close at US$43.14 per barrel (/bbl) on Friday, while the near-month contract for U.S. WTI crude rose just 0.1% to close at US$40.59/bbl.
Prices had risen mid-week on a report published by the EIA on July 15th that indicated U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 7.5 million barrels last week. The drop exceeded analysts’ expectations of a crude oil inventory draw of approximately 2.275 million barrels.
In meetings held this week, OPEC and certain oil producing allies agreed to ease the production cuts of 9.7 million barrels per day (MMbbls/d) that they had announced earlier this year in order to curb the global supply glut. The current agreement will remain in play until the end of this month, with production cuts decreasing by 2.0 MMbbls/d in August.
However, OPEC has requested compensatory production cuts of countries like Iraq and Nigeria, which failed to meet their targets in previous months. The net increase in production may therefore only amount to about 1.1 MMbbls/d, estimates suggest.
Despite their confidence in increasing production, OPEC officials reiterated that the potential risk of falling demand as a result of Covid-19 closures remains strong. Cases continue to rise in the US, the world’s largest oil consumer, as well as countries such as Brazil and India.